In many complex documents, such as contracts, corporate charters, insurance policies or disclosure statements, authors of such documents utilize “defined terms” so that a concept can be described in detail once, and thereafter be easily invoked by using such defined term. Such practice promotes verbal economy by reducing redundancy, clarity of meaning by simplifying sentence structure, and amendability and portability by encapsulating the concept in a single instance. In the US, the defined terms are frequently (but not always) denoted in title case. For example, in an asset purchase agreement, the assets that are being sold and purchased may be described as “Acquired Assets.” Once defined, it is easy to discuss it and assign attributes to it, such as price to be paid or the date of transfer of such Acquired Assets, without having to reiterate its description.
Although the “defined terms” are useful for the aforementioned reasons, they raise additional challenges brought forth from their usage. Since authors of such complex documents frequently assimilate provisions from a multitude of precedents, each of which may use a similar or different set of defined terms, certain portions of the document may end up with human-induced errors, including but not limited to, when: (i) a “defined term” was defined (i.e. assigned a concept), but never used in the document; or (ii) a Capitalized Term was invoked, suggesting that it was previously defined elsewhere in the document, but it was, in fact, never defined in the document. For example, “Acquired Assets” may be defined in a contract, but not used elsewhere in the document; instead, the document may use the term “Acquired Property” throughout, which is not defined. Alternatively, “Acquired Assets” may be defined, but not used; instead, a lowercased term “acquired assets” may be used in the document. One cannot be certain whether the author meant to write “Acquired Assets”.
Such errors are problematic because they lower the quality of presentation of the document, and more importantly, they create ambiguity, which may result (and indeed have resulted) in litigation. Therefore, many legal professionals are trained to proofread the document to detect such problems, typically using a notepad while reading through the document to track each defined term's usage; however, this method is time consuming and subject to inevitable human error.